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India approved signing a 5-year memorandum of understanding (MoU) with Guyana to cooperate in the hydrocarbon sector as the South Asian nation looks to diversify its oil import sources.

The proposed agreement will cover areas such as sourcing of crude oil from the South American nation, participation of Indian companies in its exploration and production sector and cooperation in crude oil refining, a government statement said.

India, the world's third-largest crude consumer and importer, and Guyana have been in discussion about a potential bilateral oil agreement for more than two years.

Last year, Guyana had turned down the Indian government's request for discounted crude oil purchases during trade discussions.

The MoU, for an initial period of five years, will have the provision for automatic renewal if the two countries agree.